The Autumn Statement was a curious mix of sensible long-term policy making and pre-election gimmickry.
The big change, relative to the previous set of forecasts from the Office for Budget Responsibility (OBR) – the government’s fiscal watchdog and forecaster – was a large revision up in the expected level of inflation. The OBR, like the Bank of England, reckons that whilst inflation has thankfully peaked it persist for longer at a higher rate than once hoped.
Faster price and wage growth has fed through into much faster growth in tax receipts for the chancellor. But this only represents a real improvement in the overall fiscal position if one assumes that higher inflation has little impact on the government’s own spending power. That is the assumption the government has made - choosing to spend the windfall on tax cuts now at the cost of real terms cuts in public service spending later.
The centre piece was the largest single business tax cut in decades. Back in March, the government introduced full expensing for corporate investment, allowing firms to immediately write down their taxable profits by the amount of capital spending. That was supposed to run until 2026 but has now been made permanent.
In the short run that will likely lead to lower investment as firms feel less need to rush forward future plans to take advantage of a temporary tax break. But in the longer run it should reduce the real costs of investment and help business investment to grow.
That was the most eye catching of 110 supply side pro-growth reforms which ranged from changes in the incapacity benefit regime (to combat economic inactivity) to broadly sensible tweaks to the planning process and the taxation of R&D spending. Taken together, the OBR reckons they will increase the level of GDP by around 0.3% over the coming five years.
But there were gimmicks too. The two percentage-point cut in NICs feels like a straight forward pre-election giveaway. Especially as it will come into effect in January, rather than as normal in April.
The measure is worth around £450 a year to average earners but it still more than counteracted by the ongoing freeze in income tax thresholds in effect since 2021. Despite the big tax giveaways, the OBR still think the tax take will rise as a share of GDP over the coming five years to the highest level since the 1940s.
It was also notable how much of the thrust of the policies represented a chain in direction of previous conservative chancellors. In the early 2010s, George Osborne cut the headline rate of corporation tax and funded that partially by reducing capital allowances. Now corporation tax is higher but allowances more generous. A decade ago, the government aggressively increased tax thresholds only the begin undoing that in 2021 with a freeze. National insurance, which is now being cut, was increased as a recently as 2021.
The overall economic picture, despite the more upbeat tone from the government, also remains soggy. Growth was revised down for 2024 and 2025 and real incomes, even after that tax cut, are still expected to fall next year. There is not much sign of a pre-election feel good factor appearing anytime soon.
Home >Articles > Autumn Statement 2023: Economics view
Autumn Statement 2023: Economics view
Economics view: a curious mix
The Autumn Statement was a curious mix of sensible long-term policy making and pre-election gimmickry.
The big change, relative to the previous set of forecasts from the Office for Budget Responsibility (OBR) – the government’s fiscal watchdog and forecaster – was a large revision up in the expected level of inflation. The OBR, like the Bank of England, reckons that whilst inflation has thankfully peaked it persist for longer at a higher rate than once hoped.
Faster price and wage growth has fed through into much faster growth in tax receipts for the chancellor. But this only represents a real improvement in the overall fiscal position if one assumes that higher inflation has little impact on the government’s own spending power. That is the assumption the government has made - choosing to spend the windfall on tax cuts now at the cost of real terms cuts in public service spending later.
The centre piece was the largest single business tax cut in decades. Back in March, the government introduced full expensing for corporate investment, allowing firms to immediately write down their taxable profits by the amount of capital spending. That was supposed to run until 2026 but has now been made permanent.
In the short run that will likely lead to lower investment as firms feel less need to rush forward future plans to take advantage of a temporary tax break. But in the longer run it should reduce the real costs of investment and help business investment to grow.
That was the most eye catching of 110 supply side pro-growth reforms which ranged from changes in the incapacity benefit regime (to combat economic inactivity) to broadly sensible tweaks to the planning process and the taxation of R&D spending. Taken together, the OBR reckons they will increase the level of GDP by around 0.3% over the coming five years.
But there were gimmicks too. The two percentage-point cut in NICs feels like a straight forward pre-election giveaway. Especially as it will come into effect in January, rather than as normal in April.
The measure is worth around £450 a year to average earners but it still more than counteracted by the ongoing freeze in income tax thresholds in effect since 2021. Despite the big tax giveaways, the OBR still think the tax take will rise as a share of GDP over the coming five years to the highest level since the 1940s.
It was also notable how much of the thrust of the policies represented a chain in direction of previous conservative chancellors. In the early 2010s, George Osborne cut the headline rate of corporation tax and funded that partially by reducing capital allowances. Now corporation tax is higher but allowances more generous. A decade ago, the government aggressively increased tax thresholds only the begin undoing that in 2021 with a freeze. National insurance, which is now being cut, was increased as a recently as 2021.
The overall economic picture, despite the more upbeat tone from the government, also remains soggy. Growth was revised down for 2024 and 2025 and real incomes, even after that tax cut, are still expected to fall next year. There is not much sign of a pre-election feel good factor appearing anytime soon.
